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8-K - FORM 8-K - KID BRANDS, INC | c15000e8vk.htm |
Exhibit 99.1
AT THE COMPANY
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AT FINANCIAL DYNAMICS | |
Marc S. Goldfarb
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Erica Pettit / Leigh Parrish | |
Senior Vice President & General Counsel
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General Information | |
201-405-2454
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212-850-5600 |
FOR IMMEDIATE RELEASE
KID BRANDS, INC. REPORTS FOURTH QUARTER AND FULL YEAR 2010 RESULTS
Full Year Net Sales Increase 13.1%; Fourth Quarter Net Sales Increase 11.3%
Full Year Adjusted EPS of $0.73, Up 23.3%; Fourth Quarter Adjusted EPS of $0.18, Down 16.8%
Company Reiterates 2011 Net Sales Outlook of Mid-Single Digit Growth
Full Year Adjusted EPS of $0.73, Up 23.3%; Fourth Quarter Adjusted EPS of $0.18, Down 16.8%
Company Reiterates 2011 Net Sales Outlook of Mid-Single Digit Growth
East Rutherford, N.J. April 1, 2011 Kid Brands, Inc. (NYSE: KID) today reported financial
results for the fourth quarter and full year ended December 31, 2010 (Q4 2010 and FY 2010,
respectively).
Summary Results
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
% | % | |||||||||||||||||||||||
(in millions, except per share data) | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||
Net sales |
$ | 75.3 | $ | 67.6 | 11.3 | % | $ | 275.8 | $ | 243.9 | 13.1 | % | ||||||||||||
Net income (loss) |
$ | 22.8 | $ | 13.2 | 72.6 | % | $ | 34.7 | $ | 11.7 | 196.2 | % | ||||||||||||
Net income (loss) per diluted share |
$ | 1.04 | $ | 0.61 | 70.5 | % | $ | 1.59 | $ | 0.54 | 194.4 | % | ||||||||||||
Adjusted net income* |
$ | 3.9 | $ | 4.6 | (15.3 | )% | $ | 16.0 | $ | 12.8 | 25.0 | % | ||||||||||||
Adjusted net income per diluted
share* |
$ | 0.18 | $ | 0.21 | (16.8 | )% | $ | 0.73 | $ | 0.60 | 23.3 | % |
* | Adjusted net income and Adjusted net income per diluted share for each of Q4 2010, FY 2010
and the three and 12 months ended December 31, 2009 are non-GAAP financial measures, which are
described in detail under the heading Non-GAAP Information below and are reconciled to GAAP
measures in the table at the end of this release. |
Bruce G. Crain, President and Chief Executive Officer, commented, We are pleased with our 2010
operating performance and the progress we continue to achieve on our core longer-term strategic
growth initiatives. As a result of our efforts, we exceeded our prior guidance for full
year 2010 net sales and adjusted earnings per share. Even within a challenging consumer and
retailer environment, we had a solid 2010, and believe we are well-positioned to achieve our growth
initiatives and benefit from any macroeconomic improvement. We believe we continue to strengthen
our market positions in our core categories and have executed well against our new product and new
channel growth initiatives.
Fourth Quarter 2010 Results
Net sales for Q4 2010 increased 11.3% to $75.3 million, compared to $67.6 million for the three
months ended December 31, 2009 (Q4 2009). This organic growth, which was primarily the result of
strong top-line growth at LaJobi and new product launches at Sassy, was somewhat offset by softness
in our bedding businesses. LaJobis growth was driven substantially by further expansion of crib
placements at Walmart and Sassys increase was driven primarily by the further expansion of its
licensed Garanimals® product line at Walmart.
Gross profit was $16.3 million, or 21.6% of net sales, for Q4 2010, as compared to $21.2 million,
or 31.3% of net sales, for Q4 2009. Gross profit and gross profit margins decreased as a result
of: (i) a $6.5 million charge recorded in Q4 2010 related to previously announced anti-dumping
duties that we anticipate will be incurred by LaJobi, which decreased gross margins by 8.7
percentage points; (ii) higher commodity and labor costs affecting our cost of goods sold; (iii)
incremental promotional allowances provided to retailers; (iv) strong sales growth at LaJobi, whose
furniture and mattress products typically carry lower gross margins due to the nature of the
category; (v) a continued shift in product mix toward more opening price point and other lower
margin product categories, including strong sales of licensed products, which tend to have a lower
margin as a result of royalties recorded in cost of goods sold; and (vi) increased freight and
product costs.
Selling, general and administrative expense was $15.4 million, or 20.5% of net sales, for Q4 2010
compared to $12.9 million, or 19.1% of net sales, for Q4 2009. SG&A expense increased as a
percentage of sales and in absolute terms primarily as a result of additional investments in
product development, marketing and operational resources to drive future growth, partially offset
by variable cost leverage associated with core product sales growth.
Other expense was $1.3 million for Q4 2010 as compared to $1.1 million for Q4 2009. This increase
is due primarily to $0.3 million of interest expense related to the anticipated anti-dumping duties
at LaJobi, offset by lower borrowings and borrowing costs, as well as a non-recurring favorable
change of $0.7 million in the fair market value of an interest rate swap agreement in Q4 2009,
which was not a factor in 2010.
Income tax benefit was $23.2 million for Q4 2010 as compared to $6.1 million for Q4 2009. The
difference between the effective rate and the statutory rate for each period was primarily related
to reductions in the Companys tax valuation allowances.
As a result of the foregoing, net income for Q4 2010 was $22.8 million, or $1.04 per
diluted share, compared to net income of $13.2 million, or $0.61 per diluted share, for Q4
2009.
2
Adjusted net income for Q4 2010 was $3.9 million, or $0.18 per diluted share, as compared to $4.6
million, or $0.21 per diluted share, for Q4 2009. Adjusted net income for Q4 2010 reflects
adjustments to net income, as reported, to exclude the effect of: (i) the accruals recorded in the
aggregate amount of $6.9 million related to anticipated anti-dumping duty payment requirements and
associated interest expense (the Customs Accrual); and (ii) an income tax benefit of $23.2
million resulting from a reduction of tax valuation allowances (collectively, the Q4 2010 Items),
and the related assumed tax effects. Adjusted net income for Q4 2009 reflects adjustments to net
income, as reported, to exclude the effect of: (i) an income tax benefit of $6.1 million resulting
from a reduction of tax valuation allowances and (ii) $0.5 million in severance costs associated
with a former executive (collectively, the Q4 2009 Items), and the related assumed tax effects.
Full Year 2010 Results
Net sales for FY 2010 increased 13.1% to $275.8 million, compared to $243.9 million for the twelve
months ended December 31, 2009 (FY 2009). This increase was primarily the result of organic
top-line growth at LaJobi, Sassy and CoCaLo. Strong growth at LaJobi was driven primarily by the
performance of its Graco® licensed products and recent crib placements at Walmart
stores, while Sassys increase was driven primarily by its licensed Garanimals® product
line for Walmart and the launch of a collection of Carters licensed products, and CoCaLos
increase was due to continued strong performance of several top-selling collections.
Net income for FY 2010 was $34.7 million, or $1.59 per diluted share, compared to net income of
$11.7 million, or $0.54 per diluted share, for FY 2009.
Adjusted net income for FY 2010 was $16.0 million, or $0.73 per diluted share, as compared to $12.8
million, or $0.60 per diluted share, for FY 2009. Adjusted net income for FY 2010 reflects
adjustments to net income, as reported, to exclude the effect of: (i) the Customs Accrual; (ii) an
income tax benefit of $16.2 million resulting from a reduction of tax valuation allowances; (iii)
$0.3 million in severance costs recorded in the third quarter of 2010 associated with a former
executive; and (iv) $0.7 million in charges in the third quarter of 2010 associated with the
discontinuance of Sassys sleep positioner product line (collectively, the FY 2010 Items), and
the related assumed tax effects. Adjusted net income for FY 2009 reflects adjustments to net
income, as reported, to exclude the effect of: (i) an aggregate $15.6 million non-cash charge
recorded in the second quarter of 2009 related to the consideration received by the Company in
connection with the divestiture of its former gift business and the impairment of the
Applause® trade name; (ii) an income tax benefit of $7.2 million resulting from a
reduction of tax valuation allowances; and (ii) $0.9 million in aggregate severance costs recorded
in the first and fourth quarters of 2009 associated with two former executives (collectively, the
FY 2009 Items), and the related assumed tax effects.
At December 31, 2010, outstanding bank debt was $72.6 million. The Companys available borrowing
capacity was $28.3 million at year end. Since the Companys current credit facility commenced on
April 2, 2008, the Company has repaid approximately $58.4 million of debt, including approximately
$9.5 million of bank debt during 2010 ($10.1 million in total debt including repayment of a note
issued in connection with the CoCaLo acquisition).
3
2011 Outlook
Based on managements macroeconomic outlook and product launch plans for later in 2011, the Company
currently estimates that it will achieve approximately mid-single digit net sales growth for the
full year 2011 as compared to the full year 2010. The Company also currently anticipates that full
year non-GAAP adjusted net income per diluted share for 2011 will be approximately flat as compared
to 2010. This outlook assumes taxes at an effective tax rate of 39%. As previously announced on
March 15, 2011, the Company expects that: (i) net sales for the first quarter of 2011 (Q1 2011)
will decline as compared to the comparable period in 2010, and substantially all estimated net
sales growth in 2011 is anticipated to occur in the second half of the year due to several new
product launches and assumptions about the macroeconomic consumer environment and specific retailer
plans; and (ii) it will experience slight profitability with respect to Q1 2011 non-GAAP adjusted
net income. The foregoing adjusted net income outlook does not reflect any further adjustments
that may result from the previously disclosed investigation at LaJobi.
As announced on March 15, 2011 and further discussed in
the Companys Form 10-K for the year ended December 31, 2010 (the 2010 10-K), this outlook reflects an expectation that margin pressures will
continue in 2011 primarily related to rising commodity prices that will impact cost of goods sold,
including costs of raw materials (particularly cotton and other fabrics), third party manufacturing
labor, and freight. The Company is seeking to mitigate these pressures through vendor negotiations
and resourcing, product reengineering, new product introductions and additional select pricing
actions. The Company also expects to continue to make planned overhead and capital expenditure
investments to drive longer-term growth and efficiencies.
Mr. Crain concluded, We remain excited about our leadership
position and growth potential within the large infant and juvenile industry. We believe our successful growth over the past few years
has been driven increasingly by our strong brands and innovative product designs, as well as our ability to grow market share in a
fragmented marketplace. While we believe we are prepared to navigate and mitigate what we now expect will be a difficult 2011 with
respect to product costs, consumer uncertainty and retailer pressure, we remain confident that we will continue executing on our
long-term growth and operational strategies. Beyond 2011, we believe that emerging positive demographics for parenting could
lead to a rebound in U.S. birth and that the prospects for, and our position in, the infant and juvenile products market will become
even more favorable. As a result, we remain optimistic about Kid Brands multi-faceted growth strategies.
Update on LaJobi Investigation
Subsequent to the Companys initial LaJobi-related disclosure on March 15, 2011, the Companys
credit facility was amended to revise the definitions used in its financial covenants to
accommodate the 2010 accounting treatment and potential future impact of specified LaJobi matters
and to waive specified defaults related thereto. In addition to the termination of the two LaJobi
executives, the Company has also taken other remedial actions including the initiation of certain
enhancements to product import processes and procedures. The investigation by the Board is
continuing, focusing on certain of LaJobis business and staffing practices in Asia.
4
The Company also reported that: (i) as a result of the Customs Accrual and related facts and
circumstances, it has concluded that no earnout consideration related to the LaJobi acquisition is
payable; and (ii) it has concluded that no earnout consideration related to the CoCaLo acquisition
is payable. The Company had previously disclosed a potential earnout payment of approximately $12
to $15 million in the aggregate relating to its acquisitions of LaJobi and CoCaLo, substantially
all of which was estimated to relate to LaJobi.
See the related disclosure in the 2010 10-K
for additional information regarding, among other things, the Customs Accrual and other related events,
including the LaJobi earnout consideration, an internal investigation being conducted by the Companys
Board of Directors, the bank amendment, and other actions taken by the Company in connection with such
events, as well as a related recent shareholder litigation
Conference Call Information
The conference call, which will be held at 10:00 a.m. ET today, April 1, 2011, may be accessed by
dialing 888-516-2435 or 719-457-2639, access code: 1081793. Additionally, a webcast of the call can
be accessed at www.kidbrandsinc.com, www.earnings.com, or
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=114140&eventID=3931404, and will
be archived online shortly after the conference call for 90 days. A replay of the call will be
available through April 8, 2011, by dialing 877-870-5176 or 858-384-5517, access code: 1081793.
Non-GAAP Information
In this release, certain financial measures for Q4 2010, FY 2010, Q4 2009, and FY 2009 are
presented both in accordance with United States generally accepted accounting principles (GAAP)
and also on a non-GAAP basis. In particular, Adjusted net income and Adjusted net income per
diluted share for each of Q4 2010, FY 2010, Q4 2009, and FY 2009 are non-GAAP financial measures.
Adjusted net income is defined as net income plus/minus certain items, after giving effect
to an assumed tax impact of such items. Adjusted net income and Adjusted net income per diluted
share for Q4 2010 and FY 2010 exclude the Q4 2010 Items and the FY 2010 Items, respectively, and
Adjusted net income and Adjusted net income per diluted share for Q4 2009 and FY 2009 exclude the
Q4 2009 Items and the FY 2009 Items, respectively, and in each case, give effect to the related tax
benefits associated therewith by applying an assumed 39% effective tax rate.
These non-GAAP measures are not based on any comprehensive set of accounting rules or principles.
The Company believes that non-GAAP measures have limitations in that they do not reflect all of the
amounts associated with our results of operations as determined in accordance with GAAP. However,
the Company believes that the non-GAAP measures presented in this release are useful to investors
as they enable the Company and its investors to evaluate and compare the Companys results from
operations and cash resources generated from the Companys business in a more meaningful and
consistent manner (by excluding specific items which are not reflective of ongoing operating
results) and provide an analysis of operating results using the same measures used by the Companys
chief operating decision makers to measure
performance. These non-GAAP financial measures result largely from managements determination that
the facts and circumstances surrounding the excluded charges are not indicative of the ordinary
course of the ongoing operation of the Companys business. As a result, the non-GAAP financial
measures presented in this release may not be comparable to similarly titled measures reported by
other companies, and are included only as supplementary measures of financial performance. This
data is furnished to provide additional information and should not be considered in isolation as a
substitute for measures of performance prepared in accordance with GAAP. Reconciliations of these
non-GAAP financial measures to the most directly comparable financial measures calculated and
presented in accordance with GAAP are included in the tables attached to this press release.
5
Kid Brands, Inc.
Kid Brands, Inc. and its subsidiaries are leaders in the design, development and distribution of
infant and juvenile branded products. Its design-led products are primarily distributed through
mass market, baby super stores, specialty, food, drug, independent and e-commerce retailers
worldwide.
The Companys operating business is composed of four wholly-owned subsidiaries: Kids Line, LLC;
LaJobi, Inc; Sassy, Inc.; and CoCaLo, Inc. Through these subsidiaries, the Company designs and
markets branded infant and juvenile products in a number of complementary categories including,
among others: infant bedding and related nursery accessories and décor, kitchen and nursery
appliances, and diaper bags (Kids Line® and CoCaLo®); nursery furniture and related products
(LaJobi®); and developmental toys and feeding, bath and baby care items with features that address
the various stages of an infants early years (Sassy®). In addition to the Companys branded
products, the Company also markets certain categories of products under various licenses, including
Carters®, Disney®, Graco® and Serta®. Additional information about the Company is available at
www.kidbrandsinc.com.
Note: This press release contains certain forward-looking statements. Additional written and
oral forward-looking statements may be made by the Company from time to time in Securities and
Exchange Commission (SEC) filings and otherwise. The Private Securities Litigation Reform Act of
1995 provides a safe-harbor for forward-looking statements. These statements may be identified by
the use of forward-looking words or phrases including, but not limited to, anticipate, believe,
expect, project, intend, may, planned, potential, should, will or would. The
Company cautions readers that results predicted by forward-looking statements, including, without
limitation, those relating to the Companys future business prospects, revenues, working capital,
liquidity, capital needs, order backlog, interest costs and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those indicated in the
forward-looking statements. Specific risks and uncertainties include, but are not limited to those
set forth under Item 1A, Risk Factors, of the Companys most recent Annual Report on Form 10-K.
The Company undertakes no obligation to publicly update any forward-looking statement, whether as a
result of new information, future events or otherwise.
###
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KID BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
$ | 75,254 | $ | 67,607 | $ | 275,777 | $ | 243,936 | ||||||||
Cost of sales |
58,972 | 46,452 | 199,483 | 168,741 | ||||||||||||
Gross profit |
16,282 | 21,155 | 76,294 | 75,195 | ||||||||||||
Selling, general and
administrative expenses |
15,406 | 12,897 | 53,939 | 48,583 | ||||||||||||
Impairment and valuation reserve |
| | | 15,620 | ||||||||||||
Operating income (loss) |
876 | 8,258 | 22,355 | 10,992 | ||||||||||||
Other (expense) income: |
||||||||||||||||
Interest expense, including
amortization and Write-off of
deferred financing costs |
(1,259 | ) | (1,168 | ) | (4,210 | ) | (6,620 | ) | ||||||||
Interest and investment income |
| | 11 | 10 | ||||||||||||
Other, net |
(61 | ) | 25 | 308 | 161 | |||||||||||
(1,320 | ) | (1,143 | ) | (3,891 | ) | (6,449 | ) | |||||||||
(Loss) Income from operations
before income tax (benefit)
provision |
(444 | ) | 7,115 | 18,464 | 4,543 | |||||||||||
Income tax (benefit) |
(23,212 | ) | (6,075 | ) | (16,208 | ) | (7,162 | ) | ||||||||
Net income |
$ | 22,768 | $ | 13,190 | $ | 34,672 | $ | 11,705 | ||||||||
Basic earnings per share: |
$ | 1.06 | $ | 0.62 | $ | 1.61 | $ | 0.55 | ||||||||
Diluted earnings per share: |
$ | 1.04 | $ | 0.61 | $ | 1.59 | $ | 0.54 | ||||||||
Weighted average shares: |
||||||||||||||||
Basic |
21,552,000 | 21,371,000 | 21,547,000 | 21,371,000 | ||||||||||||
Diluted |
21,952,000 | 21,770,000 | 21,838,000 | 21,532,000 | ||||||||||||
7
KID BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Dollars in Thousands)
(Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Dollars in Thousands)
(Unaudited)
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Cash and cash equivalents |
$ | 1,075 | $ | 1,593 | ||||
Accounts receivable, net |
55,270 | 42,940 | ||||||
Inventories, net |
48,564 | 37,018 | ||||||
Other current assets |
10,522 | 5,798 | ||||||
Long-term assets |
127,065 | 119,529 | ||||||
Total assets |
$ | 242,496 | $ | 206,878 | ||||
Short-term debt |
$ | 32,121 | $ | 28,633 | ||||
Other current liabilities |
40,101 | 29,734 | ||||||
Long-term liabilities |
42,292 | 57,417 | ||||||
Total liabilities |
114,514 | 115,784 | ||||||
Shareholders equity |
127,982 | 91,094 | ||||||
Total liabilities and shareholders equity |
$ | 242,496 | $ | 206,878 | ||||
8
KID BRANDS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Dollars in Thousands, Except for Share and Per Share Data)
(Unaudited)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Dollars in Thousands, Except for Share and Per Share Data)
(Unaudited)
Three Months Ended | Twelve Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009* | 2010 | 2009* | |||||||||||||
To arrive at Adjusted net income and
Adjusted net income diluted share: |
||||||||||||||||
Net income, as reported |
$ | 22,768 | $ | 13,190 | $ | 34,672 | $ | 11,705 | ||||||||
Less: tax benefit |
(23,212 | ) | (6,075 | ) | (16,208 | ) | (7,162 | ) | ||||||||
Income (loss) from operations before income tax benefit |
(444 | ) | 7,115 | 18,464 | 4,543 | |||||||||||
Add: Impairment and valuation reserve |
| | | 15,620 | ||||||||||||
Add: U.S. Customs anti-dumping |
6,859 | | 6,859 | | ||||||||||||
Add: Charge for discontinuance of sleep positioners products |
| | 667 | | ||||||||||||
Add: Severance |
| 459 | 286 | 853 | ||||||||||||
Less: Tax impact of above items (using assumed 39%
effective rate) |
(2,502 | ) | (2,954 | ) | (10,248 | ) | (8,196 | ) | ||||||||
Adjusted net income |
$ | 3,913 | $ | 4,620 | $ | 16,028 | $ | 12,820 | ||||||||
Adjusted net income per diluted share |
$ | 0.18 | $ | 0.21 | $ | 0.73 | $ | 0.60 | ||||||||
Weighted-average diluted shares outstanding, as reported |
21,952,000 | 21,568,000 | 21,838,000 | 21,532,000 |
* | In the Companys earnings release dated March 29, 2010 with respect to Q4 2009 and FY 2009,
adjusted net income and adjusted net income per diluted share did not exclude from net income
the impact of severance charges of $0.5 million in Q4 2009 for a former executive and an aggregate
of $0.9 million in FY 2009 for two former executives. Such charges, however, are excluded from net
income for such periods in the reconciliation table above for comparability purposes with Q4 2010
and FY 2010. |
9